What Is Slippage
The difference between the price you expected and the price you got. For most trades it is a larger cost than the fee.
What this covers
You press buy at one price and the order fills at another. The difference is slippage.
Why it happens
The price you see is the best available offer, and there is a limited amount available at it.
If your order is larger than that amount, the rest fills against the next offer, which is worse, and so on. Your average price ends up above where you started.
The thinner the market, the faster that happens.
The second cause
Between pressing the button and the order executing, the price can move. In a fast market that gap is enough to matter.
How much it costs
On a deeply traded pair with a small order, a fraction of a percent.
On a thin pair, or a large order, it can be several percent, which dwarfs any trading fee you were comparing between platforms.
For most people making ordinary purchases, slippage is the largest execution cost and the one nobody measures.
How to reduce it
Use a limit order. You set the price and the order cannot fill worse than it. The trade is that it might not fill at all.
Check the depth first. The order book shows how much is available near the current price. If your order is large relative to that, split it.
Avoid thin hours. Depth is lowest at weekends and outside the main trading regions, and slippage scales inversely with depth.
Split large orders. Several smaller orders over time generally get better aggregate prices than one large one.
The on-chain version
When swapping on a decentralised exchange, slippage tolerance is a setting rather than an outcome. It specifies the worst price you will accept before the transaction fails.
Too tight and transactions fail, costing the network fee and delivering nothing.
Too wide and you accept a considerably worse fill, and you become worth attacking by traders who profit from your order moving the price.
For a small trade in a deep pool, a tight setting is fine. For anything else, the question is whether the trade should happen on-chain at all.
How to measure what you actually paid
Note the mid price, halfway between the best bid and ask, immediately before your order. Then divide what you paid by what you received.
The difference is your slippage. Doing this a few times tells you whether the venue you use has the depth it appears to.
Venues publishing full order book data, such as a regulated exchange such as Collect & Exchange, make that measurement possible. Platforms that only show a quoted price have made it something you cannot check.